Downsizing store portfolios "necessary", says report

Monday 10 September 2012 - Editorial Assistant

Downsizing store portfolios is a necessary step for retailers looking to preserve sales volumes, according to a report released today.

Business advisory firm Deloitte found that a “barnacle effect” which causes retailers to keep a hold of stores through an attachment to absolute store numbers puts some retailers’ survival at risk as they ignore the impact of the digital age.

Deloitte predicts that some retailers must downsize store portfolios by up to 40 per cent as the growth of omnichannel ushers in structural changes within the industry, adding that online sales already account for the equivalent of over 60 million sq ft of retail space, a figure set to rise as the market continues to mature.

“The death of the high street is far from being a reality, yet stores are now just one part of a larger, more connected customer experience and many retailers are struggling to define the relevance and future contribution of their physical space,” explained Hugo Clark, Director of the Real Estate team at Deloitte.

“Shops now represent a potentially clumsy, fixed point in an increasingly mobile world. In many cases, they are slow and costly to adapt, expensive to operate and difficult to relinquish once surplus to requirement.”

Establishing a business case and overseeing a long-term strategy for each individual store is key to success, Deloitte believes, and it is important that store closures form part of a cohesive strategy rather than retailer’s simply closing stores when leases expire.

“While this is unlikely to be cheap, it may prove to be a good long term investment. Many retailers who don’t manage this approach proactively only consider consolidating their store portfolio under the shadow of a refinancing negotiation.”

Flexibility and the power to adapt to an ever-changing environment will stand businesses in good stead, explained the firm, which was keen to note that physical stores remain critical within the multichannel world.

Adam Stewart, Marketing Director at Rakuten’s Play.com, said that he hoped the findings would spark a much-needed debate on the importance of online versus offline retail.

“Rather than debating whether shops should sell online or offline, in our experience of working with retailers both small and large, the answer is almost always both,” Stewart commented.

“What is interesting however, is the split between the two. While some companies will always sell more from physical stores, many retailers could actually make more money through selling online, for very little extra investment comparatively.

“Ideally, online and offline retailing should support each other, rather than competing between each other for the same sale.

“Bricks-and-mortar stores require staff, incur large rental costs, and have to operate reduced opening hours on Sundays. In comparison, online has far fewer overhead costs and shoppers can browse at any time of the day or night.

“The high street will always have a part to play in the British retail industry, however this report indicates that e-commerce should no longer be playing second-fiddle to physical retail outlets.”